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Nvidia Earnings: Not That Impressive – Seeking Alpha

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After the bell on Thursday, chip maker NVIDIA (NVDA) rallied when reporting the company’s fiscal first quarter results. The headline numbers will show beats on both the top and bottom line, with guidance that was mostly in-line with expectations. However, given how much the situation has changed in recent months, this isn’t a report that has me screaming buy, buy, buy. Revenues of $2.22 billion for the quarter came in $20 million ahead of estimates. However, this is barely an impressive result when you consider that three months ago, guidance was terrible, sending estimates down $210 million between reports. In fact, just two reports ago, the street was looking for $2.89 billion this quarter, just to show how far expectations have fallen. The end result was a 31% year over year drop in revenues, show in the chart below. Blue (the * periods) represents current estimates. (Source: NVIDIA earnings page, seen here) The same story was true for earnings per share. While non-GAAP EPS of $0.88 beat by 7 cents, estimates were for $1.57 just six months ago. At that time, the stock was only about $5 below where it is now, so it’s not like the market has really punished the name since. GAAP operating income was down 72% over the prior year period, with net income of $394 million just a fraction of the nearly $1.25 billion profit a year earlier. When it comes to guidance, a revenue forecast with a midpoint of $2.55 billion is fair, but again, it has to do with reduced estimates. Had this forecast been given just three months ago it would have looked terrible. There is some improvement coming, but it takes time for this to occur. Also, I still don’t like the fact that inventory levels are up 79% year over year when the company is guiding to huge revenue declines. This isn’t a very efficient way to manage your capital allocation. I’ve talked about bloated inventory for a couple of quarters now, and the situation has not dramatically improved.
NVIDIA CEO Jensen Huang in the earnings press release said that the company is on an upward trajectory. Well, it’s kinda hard not to be when revenues are down more than 30% in the quarter. Also, if things are looking so bright moving forward, why did the company not buy back any stock during the period? In the year ago period, over $650 million was spent. Well, it has to do with the pending Mellanox (MLNX) acquisition, which at $6.9 billion takes up almost all of the company’s current cash balance. With the stock down more than 45% from its all-time high, some investors might think that now is the perfect time to repurchase shares. In the end, NVIDIA’s Q1 report was okay, but I don’t see it sending shares skyrocketing anytime soon. Headline beats and in-line guidance will mostly be the story, but that’s only due to massive reduced expectations. The company is starting to turn around but it will be a few quarters before we see growth again, and the Mellanox deal’s cash impact has stopped share repurchases for now. If the company isn’t buying its own stock, should you be? There are certainly brighter days ahead, but this wasn’t exactly a report that would make me want to rush in and buy the stock.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

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